Section 254, read with section 263, of the Income-tax Act, 1961

Last updated: 25 September 2007

Court :
HIGH COURT OF GUJARAT

Brief :
Section 254, read with section 263, of the Income-tax Act, 1961 - Appellate Tribunal - Powers of - Assessment year 1986-87 - Whether where Commissioner passed an order under section 263 directing disallowance of additional commission on ground that Assessing Officer had not made proper inquiries and had not verified claim regarding additional commission, Tribunal while deciding assessee’s appeal against aforesaid order passed by Commissioner, had jurisdiction to modify order of Commissioner by restoring matter to file of Assessing Officer with a direction to make proper investigation and then decide question of allowability of additional commission in accordance with law - Held, yes Facts The assessee had claimed deduction towards commission. The amount of commission comprised of two parts : (1) regular commission which was deducted by the consignees before the sale proceeds were remitted to the assessee, and (2) additional commission which was over and above the amount of commission payable to consignee distributors as per agreement entered into by the consignee distributors with the assessee. The Assessing Officer allowed the claim while framing the assessment order. The Commissioner initiated action under section 263 and came to the conclusion that the Assessing Officer had not made proper inquiries and verified the claim regarding additional commission inasmuch as claim was premature and was only in the nature of provision. Therefore, the Commissioner directed the Assessing Officer to disallow the assessee’s claim and revise the assessed income. On appeal, the Tribunal upheld the invocation of section 263, but modified the order of the Commissioner to the extent of setting aside the direction to finally disallow the commission, by substituting the same with a direction to the Assessing Officer to make proper inquiries and then decide whether the additional commission was allowable or not. On reference, the assessee submitted that the Tribunal had committed an error in modifying the order of the Commissioner under section 263 in the aforesaid manner as the Tribunal could only uphold the order of the Commissioner or hold that the same was bad in law.

Citation :
Harsiddh Specific Family Trust v. Commissioner of Income-tax

Held On a plain reading of section 254(1) it is apparent that no fetters are placed on the powers of the Tribunal to pass an order in appeal before it, except for the fact that an enhancement may not be permissible in absence of any cross-appeal or cross-objection. The Legislature having couched the provision in the widest manner to pass such orders in the appeal as the Tribunal thinks fit, it would be incorrect to restrict the said powers in any manner whatsoever. Of course, the powers have to be exercised in consonance with the provisions and in accordance with the law. There is no warrant to read any restriction on the powers that the Tribunal can exercise in the circumstances like the one obtaining in the instant case. [Para 9] In the instant case, the Commissioner, while passing the order under section 263, had directed disallowance of the additional commission without anything more. The Tribunal modified the same with a direction to the Assessing Officer to make inquiries and then disallow the claim, if the facts would so warrant. In fact, the order of the Commissioner was modified in favour of the assessee and no prejudice was shown to have been caused to the assessee. Instead of the entire amount being disallowed, in the event of the order of the Commissioner being confirmed in toto, the assessee had been granted an opportunity of leading evidence and satisfying the assessing authority that the claim made was valid, legal and tenable at law. The assessee could have no grievance in this fact-situation. [Para 10] In fact, during the course of hearing, it was submitted on behalf of the assessee that in other matters of the group wherein similar orders were made by the Commissioner under section 263 and wherein the Tribunal had made similar directions, the Assessing Officer had allowed the claim of the group concerns after investigation and appreciating the evidence on record. [Para 11] In the light of what was stated above, the Tribunal while deciding the assessee’s appeal against the order passed by the Commissioner under section 263, had jurisdiction to direct the Assessing Officer to make proper investigation and then decide the question of allowability of additional commission in accordance with law. [Para 13]